The market was under pressure yesterday and we saw several indexes very close to those support levels, but late in the session the market started to bounce again. There has been nothing more on the Ukrainian front to bring additional concern. Obama met with the newly installed Ukraine PM for a photo opportunity and a jab at Putin to show we support the newly installed government. However, Obama stopped short of making any real threats and thus the tough talk that brought concern to the market faded by the end of the day. As the situation simmers, the market redirects its attention back to economic data ahead of the FOMC meeting next week.
Courtesy of Green Shoots Realestate
This morning I heard Steve Liesman (economics reporter for CNBC) say we are seeing “green shoots” from this morning’s economic data. We all know he is a biased Keynesian, actually studied in Russia and I think he may have some communist (certainly collectivist) leanings. Green shoots, really? Let’s look at these numbers to determine how green they really are.
The Labor Report for February was better than expected, but still well below the monthly average. There also remained some underlying concerns about the data, primarily the low participation rate in the household survey which determines the U3 unemployment rate. Additionally, the ADP, Challenger, Durable Goods, and inventories have all been weak. Back in the lower revised GDP for the 4th quarter and there is no doubt there are some fundamental concerns about the economic recovery. So how will that play into the FOMC meeting and possible monetary policy changes?
Weekly Jobless Claims
There are a few data points coming in before the next meeting and any big volatility in those numbers will certainly bring a pause to the Fed members and Yellen. This morning the weekly jobless claims came in better than expected and fell to a 3-month low. Claims dropped 9,000 to a “seasonally adjusted” 315,000. Of course the previous week, like every one before them, has been revised higher. Yet, despite my criticism, any drop is good. The 4-week moving average, probably the best measure as it is less volatile, is seeing it drop to 330,500. How are we doing on a year-over-year basis? Actually ok – but not great. Last year this time the 4-week moving average was 347,000.
SEASONALLY ADJUSTED DATA
Courtesy of CNBC
The better news, which went unreported, was the big drop in the non-adjusted total for those collecting federal unemployment benefits, down 90,000 to 3,285,703. This, of course, is an advanced number and we will have to see next week if it is adjusted. There are some concerns that it is under-reported because of the winter storms.
Lower jobless claims do NOT equal job creation!
However, what we can’t (unlike CNBC economics reporter Steve Liesman) assume that a drop in weekly claims means job creation and an improvement in the economy. Remember, just because less people are filing for claims doesn’t automatically mean they found a job. There are several factors at play here. First, there are those leaving the work force and, second, there are those that no longer are eligible for unemployment benefits (they ran out). Remember, the participation rate is running in the 60% range, which means the government is ONLY counting 60% of the actual unemployed in their U3 unemployment rate. Think about that, 40% of those who are actually unemployed are not even counted in the household survey (the government explains them away with labels). I am certainly not trying to rain on the parade, but a single advanced, seasonally adjusted weekly claims number (while certainly an improvement) doesn’t mean we have just seen a sign of a robust economic recovery. Its good news, but we need job creation not just a drop in weekly claims, the two are NOT synonymous no matter what Steve Liesman says. Let’s also wait for next week’s revision and also unadjusted data.
The Commerce Department’s Retail Sales Report for February, 2014 was slightly better than expected, rising 0.3% in almost all categories. While better news, it is also well within the margin of error and too hard to discern if there was any real improvement. However, what was under-reported this morning was the downward revision in the January Retail sales to a DROP of 0.6%. Of course, the spin this morning is that the downward revision in January was because of the bad storms; however, the February numbers are showing a rebound after the storms. WHAT? Wait a second, the storms that caused all the “problems” were in February, not January. Remember? From February 11th-17th we had all those airport shutdowns and problems. The spin doctors don’t even have their facts straight and continue to try to blame storms for any bad news, but any good news is because the economy is improving. I want the economy to improve too, but come on, let’s dispense with the conjecture and blame-gaming. If March’s numbers turn out badly, I’ll bet they will blame them on the storms, too. I do expect improvement this spring, but to say that February was better because of weather improvements is just a fib.
Do the MATH!
The “adjusted” numbers in the Commerce Department’s report are difficult to ascertain. They show the February Retail Sales total, non-adjusted, at $385 billion vs. January’s at $389 billion, which is a DROP in non-adjusted retail sales of -1.215%. However, if we look at their “seasonal adjusted” numbers, they show February at $427 billion vs. January at $426 billion, which comes in at an increase of 0.266% (rounded UP to 0.3%). Interesting they favored February over January in their “adjustments”.
1. How do they “seasonally adjust” over $42 billion into February and only $36 billion into January? Who made that decision and why?
2. How do they “seasonally adjust” a swing from a retail sales decline of -1.215% to a positive 0.266%, which they round UP to 0.3%?
Of course, much like the Labor Department, the Commerce Department will NOT tell you how (model, math, or anything) they “seasonally adjust”.
Looking at the RAW non-adjusted data, retail sales FELL over 1%, it did NOT go up (rounded) to 0.3%.
Those that do NOT read the report, do the math, or ask questions are just expected to believe the “headline” number that the talking heads on TV regurgitate as fact. If you listen to Bob Pisani (CNBC), he was jovial about the big 0.3% improvement, be nice if he reported more than just the headline.
Monetary Policy Change?
How will this impact the FOMC monetary policy? They LOOK at the data and I think they are seeing the same thing I am. The non-adjusted data actually declined, seasonal adjustments in January were revised lower, and the rounding error up to 0.3% increase was nothing more than window dressing to sell some hope – perhaps. These are NOT strong numbers and certainly would not lend any confidence for Yellen to raise interest rates or increase the amount of taper, quite the opposite. Remember, she also leans toward more stimulus, not less.
Support & Resistance
The market rebound in the late session yesterday, did we find a short-term support?
The NDX always saw a strong late move that closed stronger. The pre-market futures are up, so it looks like we could bounce here.
Just like the other indices we got to those supports and bounced. The VIX also came off after it breached 15.
The RUT got to that short-term support and bounced in the late session. Will we see some follow-through?
Steve’s Green Shoot is just a Weed!
It seems that every year, as we head further into this government lead recovery, the government economic data becomes ever more skewed. Seasonal adjustments are not just smoothing out data, but actually invert results, turning a loss into a gain. It takes time to go through the reports, read them thoroughly, do the math and try to make heads and tails out of the actual data.
Personally, I believe we have crossed the line in which “seasonal adjustments” were traditionally used to smooth the data curves. Now they actually skew the results. The headlines are becoming ever more disingenuous with their non-adjusted data.
The problem is that the talking heads, the economic reporters, and politicians (whom we are supposed to trust) only report the headlines and then weave some story as to WHY the headline numbers are what they are.
Courtesy of Pinterest
I can’t watch Steve Liesman without being reminded of Meathead (All in the Family reference). This guy is so deep into his ideological Keynesian rabbit hole that he has never read a bad number he can’t easily explain away. Blind faith is dangerous and this guy never questions anything. Reporters are not supposed to be biased and economics should be reviewed objectively, with reason and logic. Additionally, we can’t ignore the math – even if we don’t like the results.
Steve LIESman is seeing Green Shoots, are you?
Sorry about the heavy sarcasm – to be fair, I personally like Liesman (same taste in music, interesting guy, and smart), we are just polar opposites on economics.